by Ron Paul
An alternative had to be found. At the time, many Americans viewed the tariff as an unfair tax that burdened them as consumers and benefited big business by sheltering it from foreign competition. A tax on incomes, the argument went, would at last force the rich to pay their share. And that's just how the income tax was pitched to the people: tax relief for you, in the form of lower tariffs, and a tax increase for the rich. Do not worry, people were told. Only the richest of the rich will ever pay the income tax.
That phony promise didn't last long. Within a few years, tax rates had shot through the roof, and classes of people who had thought they would never be taxed found themselves paying as well. And by the 1920s the tariff was raised again anyway, so the people wound up getting the worst of both worlds.
Now, plenty of politicians talk a good game about low taxes, and some even claim to want to decrease spending as well. Few seem to mean it, if their voting records are any indication. But if we want more economic freedom and a healthy and robust economy, serious inroads need to be made into federal spending. Otherwise, tax cuts will simply lead to more borrowing, more inflation, and the continued decline of the dollar. As I write, we are paying about $1.4 billion every day just for the interest on the national debt. Because our government refuses to live within its means, every single day we spend $1.4 billion and receive absolutely nothing in return.
But instead of talking seriously about how we might restore fiscal sanity to the federal budget, the political establishment tries to distract us with phony issues like the debate over "earmarks," legislative provisions that direct federal money to local projects. One need not look very hard to find examples of abuses of earmarks. But even if all earmarks were eliminated we would not necessarily save a single penny in the federal budget. Earmarks are funded from spending levels that have been determined before a single earmark is agreed to, so spending levels remain the same with or without earmarks.
By eliminating earmarks designated by members of Congress, all we would accomplish would be to transfer the funding decision process to federal bureaucrats and away from elected representatives. In a flawed system, earmarks can at least allow residents of congressional districts to have a greater role in allocating federal funds--their tax dollars--than if the money is apportioned behind locked doors by bureaucrats.
The real problem, and one that was unfortunately not addressed in 2007's earmark dispute, is the size of the federal government and the amount of money we are spending in these appropriations bills. Cutting even a million dollars from an appropriations bill that spends hundreds of billions will make no appreciable difference in the size of government, which is doubtless why politicians and the media are so eager to have us waste our time on this.
There is a danger that supporters of limited government will focus on this trivial question and neglect the much more important and difficult battle of returning the federal government to spending levels more in line with its constitutional functions. Without taking a serious look at the actual total spending in these appropriations bills, we will miss the real threat to our economic security.
The kind of spending cuts we obviously need will not be easy, since our government has encouraged so many Americans to become dependent on federal programs. These programs cannot survive much longer without a financial collapse. Our national debt, now nine trillion dollars, does not include the unfunded liabilities to programs like Social Security and Medicare that will come due in the coming decades to the tune of another $50 trillion. It is simply impossible to fulfill those promises. The level of taxation necessary to fund a figure like that would destroy the American economy and dramatically shrink the productive base from which those funds could be drawn.
David Walker, the comptroller general at the U.S. Government Accountability Office, tells us that Social Security and Medicare are headed for disaster because of demographic trends and rising health care costs. The number of younger taxpayers for each older retiree will continue to decline. The demand for "free" prescription drugs under Medicare will explode. If present trends continue, by 2040 the entire federal budget will be consumed by Social Security and Medicare. Forty percent of our entire private-sector output will need to go to just these two programs. The only options for balancing the budget would be cutting total federal spending by about 60 percent, or doubling federal taxes.
Furthermore, Walker asserts, we cannot grow our way out of this problem. Faster economic growth can only delay the inevitable hard choices. To close the long-term entitlement gap, the U.S. economy would have to grow by double digits every year for the next 75 years.
Issues like these are predictably portrayed as contests between generous souls who want to provide for their fellow men on the one hand, and misers and misanthropes who care nothing for the suffering of their fellow citizens on the other. I should not have to point out that this is an absurd caricature. The fact is, we do not have the resources to sustain these programs in the long run. There is no way around this simple fact, a fact politicians consistently ignore or conceal in order to tell Americans what they think their fellow countrymen want to hear.
In the short run, in order to provide for those we have taught to be dependent, such programs could survive. My own suggestion is to fund this transition period by scaling back our unsustainable overseas commitments, saving hundreds of billions from the nearly one trillion dollars our empire is costing us every year, and in the process streamlining our overstretched military and making it more efficient and effective. That is the only place where we can easily save money, applying some of the savings to these domestic programs and the rest to debt reduction.
Our out-of-control welfare state also helps account for the scope of our illegal immigration problem. When you subsidize something, you get more of it, and by offering free medical care and other services, as well as the prospect of amnesty, we get more illegal immigration. Meanwhile, hospitals have begun closing as our states and localities struggle to pay the bills. That is one reason that the libertarian economist Milton Friedman once said, "You cannot simultaneously have free immigration and a welfare state." John Hospers, the Libertarian Party's first presidential candidate and the author of its Statement of Principles, has taken the same position.
And once again, the state divides rather than unifies. There would be far less hostility toward immigrants if the perception did not exist that they were getting something for nothing, while the rest of America struggles to make ends meet. There would likewise be less hostility if we had a more robust economy--which we absolutely would if we followed the advice in this book. When, thanks to government policy, the economy is shaky, as it is now with the housing bubble bursting and inflation on the rise, it is all the easier to hold up immigrants as the scapegoats for people's economic woes, thereby letting the incompetents and shysters who make our economic policy off the hook.
Excessive government spending has done more than just put us in debt. Charles Murray offers us a useful thought experiment that illustrates the welfare state's enervating effects on our communities and our character. Imagine that the programs that constituted the federal "safety net" were all of a sudden abolished, and for whatever reason could not be revived. And pretend also that the states chose not to replace them with programs of their own, which they almost certainly would. The questions Murray wants us to focus on are these: How would you respond? Would you be more or less likely to volunteer at a food bank? Would you be more or less likely to volunteer at a literacy center? If you were a lawyer or physician, would you be more or less likely to offer pro bono services?
We would all answer yes to these questions, wouldn't we? But then we need to ask ourselves: why aren't we doing these things already? And the answer is that we have bought into the soul-killing logic of the welfare state: somebody else is doing it for me. I don't need to give of myself, since a few scribbles on a tax form fulfill my responsibility toward my fellow man. Do our responsibilities as human beings really extend no farther than t
his?
In the days before Medicare and Medicaid, for instance, the poor and elderly were admitted to hospitals at about the same rate they are now, and received good care. As a physician I never accepted Medicare or Medicaid money from the government, and instead offered cut-rate or free services to those who could not afford care. Before those programs came into existence, every physician understood that he or she had a responsibility toward the less fortunate, and free medical care for the poor was the norm. Hardly anyone is aware of this today, since it doesn't fit into the typical, by-the-script story of government rescuing us from a predatory private sector. Laws and regulations that inflated the cost of medical services and imposed unreasonable liability standards on medical professionals even when they were acting in a volunteer capacity later made offering free care cost prohibitive, but free care for the poor was common at a time when America wasn't so "governmentish" (to borrow a word from William Penn). We have lost our belief that freedom works, because we no longer have the imagination to conceive of how a free people might solve its problems without introducing threats of violence--which is what government solutions ultimately amount to.
In From Mutual Aid to Welfare State: Fraternal Societies and Social Sercices, 1890-1967, historian David Beito uncovered some of the story of how people once cared for their needs in the absence of massive bureaucracies and the financial chaos and moral hazard they inevitably cause. Beito focuses particular attention on fraternal organizations, which in decades past provided all kinds of services for their members that we now assume must be handled by government. With strength in numbers, such organizations were able to negotiate with doctors and get very inexpensive health care as well.
On the other hand, just about everyone is unhappy with the health care system we have now, a system some people wrongly blame on the free market. To the contrary, our system is shot through with government intervention, regulation, mandates, and other distortions that have put us in this unenviable situation.
It is easy to forget that for decades the United States had a health care system that was the envy of the world. We had the finest doctors and hospitals, patients received high-quality, affordable medical care, and thousands of privately funded charities provided health services for the poor. I worked in an emergency room where nobody was turned away for lack of funds. People had insurance policies for serious health problems but paid cash for routine doctor visits. That makes sense: insurance is intended to protect against unforeseen and catastrophic events like fire, floods, or grave illness. Insurance, in short, is supposed to measure risk. It has nothing to do with that now. Something has obviously gone wrong with the system when we need insurance for routine visits and checkups, which are entirely predictable parts of our lives.
Today most Americans obtain health care either through a Health Maintenance Organization (HMO) or similar managed-care organization, or through Medicare or Medicaid. Since it is very hard to make actuarial estimates for routine health care, HMOs charge most members a similar monthly premium. Because HMOs always want to minimize their costs, they often deny payment for various drugs, treatments, and procedures. Similarly, Medicare does not have unlimited funds, so it generally covers only a portion of any costs. The result of all this is that doctors and patients cannot simply decide what treatment is appropriate. Instead, they constantly find themselves being second-guessed by HMO accountants and government bureaucrats.
When a third party is paying the bills and malpractice lawsuits loom, doctors have every incentive to maximize costs and order all possible tests and treatments. The incentive to cut costs is lost, as physicians (now working essentially as low-level employees) seek to make as much as they can in the new corporate environment and charge the maximum the HMOs allow. Before 1965, physicians and hospitals (like all other private entities competing for your dollar) strove to charge the minimum; because payment now comes so largely from third parties, they instead charge the maximum. At the same time, patients suffer when legitimate and necessary treatment is denied. HMOs have become corporate, bureaucratic middlemen in our health care system, driving up costs while degrading the quality of medical care. In all other industries, technology has nearly always led to lower prices--except in health care, thanks to the managed-care system that has been forced upon us.
In fact, with costs skyrocketing due to this system, more and more Americans are actually traveling overseas to get high-quality, inexpensive health care--half a million of them took this route in 2005 alone. It is not unusual to be able to get an operation in India, at the hands of Western-trained physicians, for 60 percent less than it would cost in the United States.
The story behind the creation of the HMOs is a classic illustration of what economist Ludwig von Mises once said: government interventions create unintended consequences that lead to calls for further intervention, and so on into a destructive spiral of more and more government control. During the early 1970s, Congress embraced HMOs in order to address concerns about rising health care costs. But it was Congress itself that had caused health care costs to spiral by removing control over the health care dollar from so many consumers in the 1960s, and thus eliminating any incentive to pay attention to costs when selecting health care. Now, Congress wants to intervene yet again to address problems caused by HMOs, the product of still earlier interventions.
Now that HMOs are all but universally unpopular, the very politicians who brought them to us are joining the bandwagon to denounce them, hoping the American people will forget, or never be told, that the federal government itself virtually mandated HMOs in the first place. The tax code excludes health insurance from taxation when purchased by an employer, but not when purchased by an individual. In addition, the HMO Act of 1973 forced all but the smallest employers to offer HMOs to their employees. The combined result was the illogical coupling of employment and health insurance, which often leaves the unemployed without needed catastrophic coverage. As usual, then, government intervention into the market caused unintended, undesired consequences, but politicians blame the HMOs instead of the interventions that helped create them. Consumer complaints about insurers and HMOs compel politicians to draft new laws and more regulations to curry voter favor. More regulations breed more costs, limiting more choices, causing more anguish--and the cycle continues.
The most obvious way to break this cycle is to get the government out of the business of meddling in health care, which was far more affordable and accessible before government got involved. Short of that, and more politically feasible in the immediate run, is to allow consumers and their doctors to pull themselves out of the system through medical savings accounts. Under this system, consumers could save pretax dollars in special accounts. Those dollars would be used to pay for health care expenses, with patients negotiating directly with the physicians of their choice for the care they choose, without regard for HMO rules or a bureaucrat's decision. The incentive for the physician is that he gets paid as the service is rendered, rather than having to wait months for an HMO or insurance provider's billing cycle.
With the cash for the MSAs coming from pretax dollars, most Americans could afford deposits that would cover routine expenses that families experience in a year. Insurance would tend to return to its normal function of providing for large-scale, unanticipated occurrences, and would become far more affordable.
Even now, though, it is possible for physicians to operate outside this crazy system if they make a special effort to do so. Several years ago I had a chance to meet Dr. Robert Berry, who had come to Washington to offer testimony before the congressional Joint Economic Committee, of which I am a member. Dr. Berry had opened a low-cost health clinic in rural Tennessee. The clinic does not accept insurance, Medicare, or Medicaid, a policy that allows Dr. Berry to treat patients without interference from third-party government bureaucrats or HMO administrators. He and his patients can therefore decide for themselves on appropriate treatments.
In other words, Dr. Berry practices m
edicine as most doctors did 40 years ago, when patients paid cash for ordinary services and had inexpensive catastrophic insurance for serious injuries or illnesses.
Doing so affords him additional advantages as well. Freed from the bureaucracies of HMOs or government, he can focus on medicine rather than billing. By operating on a cash basis he lowers his overhead considerably, thereby making it possible to charge much lower prices than other doctors. He often charges just $35 dollars for routine maladies--only slightly more than the insurance co-pay that other offices charge. His affordable prices enable low-income patients to see him before minor problems become serious, and unlike most doctors, Dr. Berry sees patients the same day on a walk-in basis.
His patients are largely low-income working people who cannot afford health insurance but don't necessarily qualify for state assistance. Some of his uninsured patients have been forced to visit hospital emergency rooms for nonemergency treatment because no doctor would see them. Others disliked the long waits and inferior treatment they endured at government clinics.
And speaking of poor treatment, those who favor national health care schemes should take a good, hard look at our veterans' hospitals. There is your national health care. These institutions are a national disgrace. If this is the care the government dispenses to those it honors as its most heroic and admirable citizens, why should anyone else expect to be treated any better?
Americans have been given the impression that "regulation" is always a good thing, and that anyone who speaks of lessening the regulatory burden is an antisocial ogre who would sacrifice safety and human well-being for the sake of economic efficiency. If so much as one of the tens of thousands of pages in the Federal Register, which lists all federal regulations, were to be eliminated, we would all die instantly.
